PA NC: Should Retirement Income Be a Part of Your Practice?

According to panelists at the PLANADVISER National Conference in Orlando, Florida, the need for retirement income discussions is large now, and will only grow with the Baby Boomers.

Consumers are looking to talk to someone about income planning about 10 years prior to retirement, but don’t know where to go, said David Liebrock, Executive Vice President, Retirement Business of Fidelity Investments Institutional Services Co. “It is not a question of if this a trend,” Liebrock commented.

Aaron Hagwood, VP Wealth Advisor of The Hagwood Tomoda Group at Morgan Stanley says his practice used to be 65% 401(k) but he has seen that decrease as the amount of wealth management, specifically retirement income work with retirement plan participants, has increased. Now, he says, retirement plans probably only account for 50% of his practice’s revenue.

Troy Hammond, President of AmeriFlex Financial Services, a member firm of NRP, said that although he has a retirement income group within his practice that accounts for about 50% of his revenue, he doesn’t do wealth management sales. Instead, he says, his firm focuses on the accumulation and decumulation concepts and helps participants understand whether or not they will have enough money in retirement.

Although he acknowledged that he hasn’t had plan sponsors, acting in their plan sponsor role, ask for retirement income planning for their employees, Hammond said that when he discusses it with the retirement plan committees (who happen to generally be in their 50s), the committee members all want it, and so then they realize the value of the offering.

However, the value of the offering is in approaching individuals before they retire, so Hammond and his practice have begun retirement planning seminars that they do well before retirement. “A lot of people are withdrawing funds pre-retirement,” Hammond explained. Therefore, “you have to start the process before their last paycheck is arriving.”

A Retirement Income Practice

Brand yourself as a retirement income specialist, Liebrock told the adviser attendees, and make yourself known to consumers. Although not all retirement plan advisers are looking to establish a retirement income practice, and many still plan to focus solely on the qualified plan space, Liebrock said advisers should realize that there is a significant opportunity cost to not getting involved in this space. “If you don’t capture rollovers,” he said, “what is the leakage or withdrawal rate from 401k plans?”

Account aggregation is a large part of building a strong retirement income practice. Both Hagwood and Hammond said that they have minimum account sizes necessary to work with their practices. However, oftentimes, if the adviser has established a good rapport with the retirement plan participants, they will want to work with that particular adviser and then the adviser might find that although a participant only has $50,000 in the one employer’s retirement plan, there are a few accounts from previous employers that can be rolled over, or an old IRA, or other assets that a participant will be willing to combine to meet a minimum account size.

Working with retirement plans lends itself naturally to a practice’s wealth management growth as well, Hagwood said, because the referrals that come from workers are invaluable. Referrals are a large part of Hammond’s business as well, he commented: “60-year-olds with big balances hang out with other 60-year-olds with big balances.”

The wealth management part of his practice is thriving, Hammond said, and advised those in the audience that if they were to broaden their retirement plan practice to include a retirement income offering, to “prepare for growth and be prepared from the beginning.”

Product Offerings

Although there are many product offerings out there, “you don’t want to pigeonhole people into products,” Liebrock warned, reminding advisers that they have to think through the fiduciary issues, including risk, cost, and limitations, of all products – both in-retirement products, such as the new annuities packaged as a defined contribution investment, and the at-retirement solutions.

Hammond said he uses many prepackaged solutions, and sees an increasing number of providers with new retirement income product offerings. However, it is important to examine what an investor gets in return for their money; an adviser must know if there is value, Hammond said.

In recognition of each individual’s varying circumstances and needs, Hagwood builds an individualized portfolio for each participant that includes insurance products alongside other investments.